Sustained high oil prices could drive the Saudi GDP higher than initial estimates, Global Research said in its KSA Economic Overview February 2012. IMF also forecast earlier that the economic expansion of Saudi Arabia will post a real GDP growth of 3.3 percent in 2012 and average at 4.4 percent till 2016. Global Research said the government's commitment to economic and social development including propagation of economic and financial reforms has bore fruit with GDP growth that averaged at 3.3 percent over the last decade (2001-2010), touching 6.8 percent in 2011 after rising from 3.8 percent in 2010. Oil prices averaged around $108/barrel in 2011 as compared to around $77/barrel in 2010. A 40 percent YoY rise in average oil prices during the year augured well for the economy which benefited further from increase in oil production; average of 9.3mn b/d in 2011 as against 8.2mn b/d in 2010. Global Research expects average oil price to hover around levels seen in 2011 with slightly higher volumes, assuming that KSA kicks up its oil production to cover for the shortage caused by sanctions on Iran; oil production in the range of 9.5 -9.6 b/d cannot be ruled out for 2012. This translates into higher revenues for the Kingdom. Non-oil GDP grew by 14.2 percent YoY in 2011, up remarkably from 9.1 percent YoY in 2010 while also outpacing the 5-year average of 7.7 percent YoY. Since growth in the oil sector GDP was much higher at 41 percent YoY, the contribution on non-oil GDP to the total declined from 49 percent in 2010 and from a 5 year average of 47 percent to 44 percent in 2011. It also noted that steps introduced by the government to achieve economic diversity seem to be on the right track, gauged from the excessive growth shown by the non-oil sector in 2011. The effects of this would be more visible when excessive gains made by the oil sector subside prices stabilize across the globe. KSA's nominal GDP increased by 29 percent in 2011, led single handedly by the mining and quarrying sector which grew 41 percent and represents oil exports. Increased production and higher average prices can be attributed as the factors behind the jump, explaining 70 percent of the rise in the GDP. Manufacturing industries, which jumped 28 percent YoY, were the next largest contributor to the increase in the GDP, forming 10 percent of the incremental GDP. This was followed by producers of government services, that grew 15 percent YoY and contributed 8 percent to the change in GDP. The slowest growth in GDP was seen by the agriculture & forestry, financial & real estate and the utilities sectors, which grew by 5 percent YoY, 7 percent YoY and 8 percent YoY respectively and added trivially to incremental GDP. It is interesting to note that the contribution of the financial sector to GDP has worn down from 11.5 percent in 2001, 7.9 percent in 2010 and from a ten year average of 9.1 percent to the current 6.5 percent, which is also the lowest in the decade. The report further said the government and public final consumption expenditures continued to rise in 2010 and 2011 posting a rise of 5 percent YoY and 14 percent YoY respectively. Despite the fact that that the contribution of this segment to incremental GDP increased from 7 percent in 2010 to 11 percent in 2011, the weight of the segment fell from 22 percent to 20 percent. Private consumption expenditure increased by around 10 percent each year for 2010 and 2011, though contribution to incremental GDP fell from 20 percent in 2010 to 11 percent in 2011 and weight in GDP fell from 35 percent to 30 percent. “We carried out scenario analysis of the government's fiscal performance for fiscal year 2012 based on three different situations. Our analysis ranges from the worst to best case, with oil output levels expected to vary from 8.5 million bpd to 9.5 million bpd and Arab Light Oil prices over the range of $80 to $100 per barrel in 2012,” the report said. Based on those scenarios analysis, Saudi Arabia could most likely report budget surplus of around SR439 billion ($117 billion) in 2011 that could range between SAR294 billion in worst case to SR707 billion under best case scenario assumptions. Overall, figures are seen to be substantially higher than the projections of the MoF.
